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SKT and China Unicom in joint procurement deal
Tuesday September 26, 6:35 am ET
By Song Jung-a in Seoul
SK Telecom (NYSE:SKM) and China Unicom (NYSE:CHU) are to jointly buy millions of mobile phone handsets as the first tangible result of the recently formed cross-border alliance of the two telecom operators.
In July, SKT, South Korea's largest mobile phone company, bought $1bn of China Unicom bonds that are convertible into a 6.7 per cent stake in the second-largest Chinese mobile carrier.
The two companies are in talks, SKT said on Tuesday, with Samsung Electronics, Motorola and LG Electronics to jointly buy six handset models. SKT and Unicom plan to order 300,000-500,000 of each.
This first batch of handsets will be mid- to high-end models, but SKT and Unicom plan to subsequently talk to other phone makers for a joint order of low- to mid-range phones for China and a network part-owned by SKT in Vietnam.
"It is quite significant that, since the strategic alliance with China Unicom, we have been able to overcome various difficulties, such as the difference in the telecommunications environment of the two countries, to acquire handset competitiveness," said Kim Shin-bae, SKT's chief executive.
Analysts estimate that joint sourcing will help the two sides to cut purchasing costs by Won10,000-Won150,000 per handset. "Joint sourcing means bigger volumes and increased pricing power. It is likely to be expanded to the joint purchase of 3.5G handsets such as HSDPA phones," said Yi Dong-sub, an analyst at Daishin Securities.
China Unicom, which operates two separate mobile networks, one using the same CDMA technology SKT uses and a larger one using the more common GSM standard, hopes the new phone models will be a boon for CDMA subscriptions. SKT hopes to follow up on the joint procurement by providing technology and other support for Unicom's rollout of 3G services. The two sides are in talks to expand cooperation into joint development of additional services and platforms, joint marketing and distribution and other areas.
Mr Yi said it would be difficult for SKT to gain greater access to the Chinese market with only a 6.7 per cent stake in Unicom, but he expects the Korean company to continue to build up its stake.
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